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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Things I like about these swing trades is that they tend to take care of themselves1. On this daily chart of the mini-sized Dow futures, a long signal occurs on August 10,2004, which paints the August 6 bar. 2. 1 go long at the close of August 10, and I'm filled at 9916. I'm now waiting for the next reversal signal in order to exit the trade. The low of August 6 is 9809, which is where I place my stop. 3. Trie next signal hits on September 7, nearly a month later. 4. I'm out at 10278 for a gain of +362 YM points, or $1,810 per contract One of the things I like about these swing trades is that they tend to take care of themselves. Compared to the active and sometimes frantic pace of intraday trading, it's almost like buying a rental property and turning the maintenance over to a management company. The type of trading a person chooses to do really is a reflection of their personality. Someone who is inherently a swing trader will have a tough time at day trading. KLAC (KLA Tencor Corp), April 5, 2004 1. On this daily chart of KLAC, a reversal signal setup on April 5, 2004 (see Fig. 8.6). 2. I took a short at the close and got in at 52.51. My plan is to now stay in the trade until I get the next reversal signal. My stop is the high of the signal bar, which is 53.97, 3. About a month later, on May 3,1 get a reversal signal. 4. 1 cover my short at 42.96 for a gain of +9.55. For traders who just focus on stocks, this is a great setup to use on the daily charts to catch reversals. 1. It is important to note that this setup is based purely on price action, and therefore works in all markets (see Fig. 8,7). On September 9, 2004, a reversal signal was painted on crude oil. 2* The resulting long was entered at 43.60, 3. On September 28 the reversal paint bar was in. 4. I'm out of the trade at 49.50, for a gain of 5.90. Note that this exit bar also became an entry signal to get back into the trade long as the market reversed right away and made three higher closes. If you are not familiar with crude oil, a one- dollar move on the big contract is worth $1,000, and on the mini-contract it is worth $500. So a move of 5.90 equates to $5,900 per contract on the big (symbol = CL). and $2,950 per contract on the mini (symbol = QM). The quote feed a per son needs to get live crude oil prices is Nymex. There is an option for this in eSignal and TradeStation, and it's also available through most of the other robust quote vendors. 1. I wanted to use this example to show how 1 flow in and out of positions intraday, going both long and short (see Fig. 8.8). This is best done on lower-value intra day charts such as five-minute charts or a tick chart like 233. The first signal on October 6, 2004, in the YM was painted at 10:35 a.m. Eastern. 2. This means, of course, that [ am going short at the close of the last bar in the sequence of three bars, which is 10176. 3. The next reversal is noted on the chart at point 3. 4. I cover at 10169 and simultaneously go long. The easy way to do this is to double the number of contracts you are trading on your exit order. So, if you are long 10 con tracts, then you place an order to sell 20 contracts in order to exit your 10 long contracts, and at the same time establish a new position that is short 10 contracts. 5. The next signal occurs at point 5. 6. I go long at 10186 and simultaneously go short at this same level. 7. The next signal occurs at point 7. 8. I cover my short at 10173 and go long at the same level. I'd like to share some examples of this same setup in the forex currency markets and continue to add commentary regarding the trading of these instruments. Let's start with a market that most traders are familiar with, the euro currency as it trades against the U.S. dollar. Forex MarketsEURUSD, October 15, 2004 1. On the daily chart of EURUSD (see Fig. 8.9), a long signal fires off on October 15. 2004.1 go long near point 1 at 1.2469. Remember, the stop is the lows of the signal bar. 2. The market has a steady move higher off this level, pausing to consolidate for a week in early November. However, there aren't any reversal signals given during this time, so there is nothing to do but sit on my hands and stay in the trade. EURUSD resumes its rally and shoots up haid into the end of December. At this point the market rolls over and many people in this trade start taking profits. Again, however there are no sell signals using this setup. Finally, on January 3, 2005, nearly two and one half months after the initial buy signal, a sell signal is generated at point 2.1 exit at 1.3467 for a gain of 998 pips. At $ 10 per pip, that is $9,980 per individual lot that is being traded. For each lot, a trader needs to have $1,000 in their account This is part of the large attraction of the forex marketsthe ability to establish specific stops while using leverage to ride out a potential trend until it turns, Fbrex traders often talk in terms of the dollar value of the contract they ane trading. One lol (contract) represents $100,000 worth of currency, 10 lots represents $1,000,000 worth of currency, and so on. Being long 10 lots is referred to as having a buck (i.e., a dollar). If I'm long 35 lots of EURUSD and I need to call my broker to change my order, he or she will refer to my position as three and a half bucks. Also, catching I full cent, or 100 pips, is referred to as catching one large So on this play, we caught almost 10 large which is, of course, a huge play. In the interbank market, which is where all of the institutions and large funds trade currencies, the smallest trade size is 1,000,000, or the equivalent of trading 10 lots through your retail forex broker Forex MarketsGBPUSD, May 9, 2005 L On this daily chart of GBPUSD (see Fig, 8,10), a short signaJ seis up on May 9, 2005 at point 1 and 1 go short at 1,8837. 2. The market sells off steadily, and on June 3, 2005 it fires off a reversal signal at point #2.1 cover my position at 1.8148 for a gain of 689 pips or $6,890 per contract. Or, in fore*, trader speak, almost seven large. 1. While this signal works well on daily charts for the forex markets, it also works well on intraday charts for day trading. On this 5-minute chart (see Fig. 8.11 of GBPUSD, a long signal sets up on August 2t 2005 at point 1. The entry is 1.7696. 2. About an hour later, the corresponding reversal signal fires off at point 2. This is the heads up to close out this position. The price level is 1.7724, a gain of 28 pips or $280 per contract. 1. On July 31, 2005 (see Fig. 8.12) AUDUSD sets up a Jong signal on the 60-minute chart at point 1. The long entry is at 0.7560. 2. The next day on August 1, 2005, a reversal signal is given at point 2, and we exit the play at .7604, for a gain of 44 pips. Remember, any currency pair that ends in USD is worth $10 per pip, so the gain on this trade is $440 per lot being traded. The three main currencies I trade that end in USD are the euro (EURUSD), pound (GBPUSD), and aussie (AUDUSD). [fa currency ends in USD this means that it will generally move in the opposite direction of the U.S. dollar index. If the dollar is moving higher, then euro, pound, and aussie art selling off. Within these three currencies, the euro and pound are most closely correlated to the dollar. The Australian dollar is also tied in closely to commodity prices, as Australia is a huge exporter of various commodities. Because of this, the Aussie at times doesn't move in direct correlation with the U.S. dollar. Let's take a look at the other main currency pairs. 1. The long entry is at 1.2855. 2. A few days later, on July 24, a reversal signal is given at point #2. and we exit at 1.2971, for a gain of 116 pips. Since this currency pair does not end in USD the valuation of the pip will be slightly different than the previous examples. When this play was taken, the value of a pip was around $7. So, in this case, 116 pips equates to a gain of $812 per lot being traded. This currency, the Swiss Franc, trades very closely with the U.S. dollar. If the dollar is going higher, so is swissy. 1. On July 21, 2005 USDCAD fires off a long signal at point L The entry is 1.2169. The market consolidates for a few days, and almost stops the play outbut a sell signal is never given. In this situation, there is nothing to do but wait for a signal to exit the trade. We've already established why human emotion makes a poor exit signal. 2. Nearly a week later, on July 27, a reversaJ signal is given at point 2 and we are out of the long at 1.2360, a gain of 191 pipsalmost two large- The rate for pips on this currency pair during this play were about $6, which translates into a gain of $1146 per lot being traded After reviewing this play, we've now covered the six major currency pairs that most traders focus on. There are other currency pairs that are also good to trade, and 1 will focus on two of my favorites next. Forex MarketsEURJPY, August 2, 2005 1. On August 2, 2005 (see Fig. 8.17) EURJPYeuro/yenfires off a short signal at point 1 at 136.66 on the 15-minute chart. The market chops around for about an hour before breaking down and selling off. Nearly two hours later, a corresponding reversal signal is given at point 2, and I exit the trade at 136.18, for a gain of 48 pips. The pip value on this currency pair was around $8 at the time of this play, which translates into a gain of $384 per lot being traded. Forex MarketsEURGBR July 19, 2005 1,On July 19, 2005 (see Fig. 8.18) EURGBPeuro/poundfires off a long signal at 0.6912 on the 240-minute chart. The market grinds higher. 2.Two days later, we get three lower closes in a row and the signal fires off at point 2. The exit on the long is 0.6970. or 58 pips. On this currency cross each pip is worth about $18, which makes the payout on this play $1044 per lot. This is actu ally a very quiet currency, but when it does move, it is very steady and it tends to act like nothing can stand in its way. Because of this trait, we nicknamed this cur rency pair **the tank. |
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